- The Treasury budget update shows larger deficits
Anthony Albanese’s government’s spending in the run-up to the election could deter Australians from cutting interest rates.
The Treasury Department’s Mid-Year Economic and Fiscal Outlook, published on Wednesday, showed government debt and income taxes had risen since the May budget.
Government spending as a percentage of gross domestic product is also at the highest level in almost four decades, excluding the pandemic, which will also mean bigger budget deficits in the coming years.
But before the figures were released, Treasurer Jim Chalmers denied Australia had a spending problem.
“The Governor of the Reserve Bank himself has said that government spending is not the bottom line when it comes to our inflation problem,” he told Sunrise on Wednesday morning.
“We have made a lot of progress on inflation, we still have a little further to travel, but the budget position is a very responsible budget position.”
Reserve Bank of Australia Governor Michele Bullock said in August that “public demand is not the most important thing” but added in November: “I must emphasize here that it is not just the federal governments, but also the state governments’ that help keep inflation high. .
The budget update forecast a deficit of $46.9 billion for 2025-26, up from the $42.8 billion forecast in the May budget.
Anthony Albanese’s government’s spending ahead of the election could keep Australians from getting a rate cut
Gross government debt would also rise to $1.028 trillion in the next financial year, higher than the $1.007 trillion forecast in May and accounting for 36 percent of gross domestic product.
The Reserve Bank of Australia has refused to cut rates in 2024, with the 4.35 percent cash rate now higher than comparable policy rates in Canada and New Zealand.
This is happening despite the fact that these countries, along with the US, UK and European Union, have cut interest rates this year.
Deloitte Access Economics partner Stephen Smith said the government is collecting too much income tax and spending too much on pension concessions.
“Australia’s budget situation is becoming increasingly inequitable,” he said.
“Nearly half of all federal government revenue comes from taxes on individuals.
“At the same time, major tax expenditures, such as the concessional taxation of superannuation contributions and income, and the capital gains tax credit, disproportionately benefit the wealthiest Australians.”
The Treasury Department’s Tax and Expenditures Statement published on Tuesday shows that the government would lose $24.2 billion in revenue in 2024-2025 by taxing pension income at 15 percent during the accumulation phase but not taxing it at all during the retirement phase.